In the Philippines, big profits come in small packages. From cigarettes sold by the stick on the city streets to little plastic packs of pepper hanging from local stores’ shelves and P2 mobile phone credits, this archipelago has become one of the world’s biggest markets for goods sold in small quantities. This has caused the Philippines to be often referred to as a sachet economy, after the sachet packaging of most personal care products such as shampoo, soap and toothpaste.

 

Across the Pacific in the United States, big is beautiful and bulk is profitable. Drive to your nearest Costco, Target or Walmart and you will find large cartons of cigarettes, pepper by the pound and rows and rows of bulk-sized packages. This is shopping the American way.

 

But doesn’t it add up? Buying individual aspirin, as we all know, is more expensive in the long term than buying a 1,000 in one shot. Logic would say those with less disposable incomes should buy bulk, while the wealthier could more afford buying unit- by-unit. Long-term logic apparently has nothing to do with it.

 

The local arm of global manufacturing giant Unilever knows this only too well, having done business in the Philippines for more than 75 years. Unilever Phils. chairman Howard Belton notes in an interview that more than half of the Ponds facial care products it sells in the Philippines come in sachets. Same is true for as much as 70% of its shampoo products. Unilever Phils. has also made a name for itself in the Unilever universe for having pioneered the manufacturing and sale of Rexona deodorant mini-sticks that come in 8-gram packages.

 

"We were fortunate because we invested in a manufacturing facility for deodorant sticks that produces more than the country needs. Now we are exporting to Eastern Europe, Indonesia and Thailand," says Belton.

 

He notes that deodorant sticks have become so successful that even the United States got on the act and recently placed its first major import order for the deodorants. Still, don’t expect the sachet idea to catch on too quickly in the US. Americans like the convenience of not having to return to the store on a daily basis to buy shampoo, soap or deodorant.

 

Different consumer needs mean companies must adapt. Selling oral care products in sachets is something new for the Watsons group, a unit of Hong Kong-based conglomerate Hutchison Whampoa. Watsons set up shop in the Philippines in 2002 through a joint venture with local retail giant SM group headed by Asian retail giant Henry Sy, Sr. The Watsons head said that the sachet packaging phenomenon is something it has gotten used to.

 

“The Philippine market is unique in a sense that it has a tremendous market for products in small sizes. You can buy almost anything in sachets. Sachets are sold in other countries but the market is not as big, and selling oral care products in sachets is something new,” he says.

 

Sachet packaging is not limited to fast-moving consumer goods. Virtually all household products have long been sold in sachets. These include liquid detergents, fabric softeners, bleach and dishwashing liquids. Even face powders produced by Johnson and Johnson come in mini packs.

 

The Filipinos penchant for products sold in sachets can be attributed mainly to their limited disposable income. The latest figures from the Asian Development Bank showed that 39.5% of Filipinos live below the poverty line of US$1, or P55 a day, and more than 55% exist on less than US$2.

 

The latest data from the National Statistics Coordination Board showed that Filipino families spend as much as 44% of their income on food (39% of which is consumed at home and 5% outside the home). Only about 2.3% are allotted for household goods and 3.6% on personal care and effects, thus, making it difficult for most Filipinos to invest even P100 for a bottle of shampoo.

 

As the Soap and Detergent Association of the Philippines says, the introduction of sachets, made possible by the use of composite materials, has made quality products offering hygiene benefits, such as toothpaste and shampoo, accessible to the poorest part of the population.

 

A typical 10-ml shampoo sachet sells for about P3.50 compared to P48 for a 100-ml bottle. Toothpaste sachets, on the other hand, go for P6 per 10 ml pack, versus P40 for a small 50-ml tube. Wiith sachets, the consumer pays for the product, not for the packaging SDAP data shows.

 

Having a huge market of 86 million Filipinos with a limited disposable income has also warranted a change in the business model in the Philippines. This according to Antonio Herbosa, head of the corporate finance group of Punongbayan and Araullo, a member firm of global consulting firm Grant Thornton International.

 

Herbosa describes the Philippines as a far economy that is not marked by a humming manufacturing sector, but by a growing service sector, a significant force of knowledge-based workers and economic growth buoyed by over US$7 billion in remittances from 8 million overseas Filipino workers. "A large consumables market with limited disposable income has bred a thriving sachet business," says Herbosa.

 

"The success of the sachet business in the personal care category made the sachet packaging go out of its traditional stranglehold in the personal care and household products sector to include the thriving telecommunications business," Herbosa says."Leading the sachet business is mobile texting, which is essentially consumption texting (the local term for sending short messages)," he adds.

 

The Philippines has been referred to as the texting capital of the world, with over 170 million short messages sent out daily by 22 million cellular phone users, of which 95% use pre-paid cards.Pre-paid cards used to be sold at denominations of P100 to P1,000, but leading telecommunications firms Globe Telecom and Smart Communications extended the concept even further by selling phone credits for as low as P2, primarily through the widely popular Share-a-Load or pasa (pass) load programmes where mobile phone users can e-pass part of their phone credits to other users.

 

Surprisingly, the food manufacturing sector was a little late in getting on the sachet or small packaging bandwagon, even if it has been argued that the by-the piece selling actually started with food. Long before the established manufacturing firms came up with the small packages for products such as corned beef, canned tuna, liver spread, sardines and luncheon meat, the wet markets have already been selling cooking oil, spices and even garlic in small packages for as low as 50 cents a piece. And these continue to do so.

 

This explains the continuing popularity of the wet markets and traditional sari-sari stores among Filipino consumers. Almost all of the products sold by the traditional stores and wet markets are in sachets and small packages. The array of products include canned goods, personal care products, household items such as detergents, dishwashing liquids and cleaning solutions.

 

Contrast that to the expansive mega-stores meccas in America where US consumers flock and the cultural and economical differences are apparent. The Issaquah, Washington-based operator of wholesale clubs, Costco, reported US$38.7 billion in sales in the fiscal year ended Sept. 30. They are the undisputed leader in the US$75 billion warehouse-club business. Here you can also find almost everything you need, but at a higher cost, initially. It seems Americans don’t mind paying more, knowing they won’t have to return anytime soon to restock.

 

In the end, both of these markets are a test case illuminating the fusion of economy, culture and society. It also shows that for manufacturers and marketers to survive, they must adapt to the needs of the consumer. Companies such as Unilever have obviously done that in the Philippines and the US.

 

But now, as manufacturing firms flock to other countries, particularly to China and India, it will be interesting to see what types of packaging and distribution cultures will emerge. Will Chinese consumers love of name brands and bargains lead to something entirely different? Perhaps, sachet sari-sari markets in one neighbourhood and wholesale clubs in the next?